Gift Cards: Tips for Givers and Receivers

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By Consumers Union on Tuesday, December 3rd, 2013

American consumers are set to spend nearly $30 billion on gift cards this year, with eight out of ten consumers planning to give a gift card this holiday season, according to a recent report by the National Retail Federation.

Gift cards have some protections, but gaps can catch consumers unaware. Here’s a brief summary of the federal protections that come with gift cards:

  • Cards cannot expire for five years.
  • No fee for not using the card in the first year and then not until after the card hasn’t been used for twelve consecutive months. (Once fees being, they are limited to one fee per month.)

Some states have even stronger laws on the books, including laws that allow consumers to redeem low-balance gift cards for cash. You can view a list of state laws here.

But watch out for these gaps in the law. Card issuers are allowed to charge purchase fees, which on some bank-issued cards can run $3-$5. Also, some cards that you may think of as gift cards do not have federal gift card protections, including these:

  • prepaid phone cards that can only be used for telephone services;
  • loyalty, rewards or promotional gift cards; and
  • general purpose reloadable prepaid cards, marketed as “prepaid cards.”

Moreover, consumers can be out of luck if a store goes out of business, as gift card holders from Borders recently found out. Finally, not all gift cards are protected against loss, and there are no federal purchase protections that apply, so you may have trouble disputing incorrect or unauthorized charges.

So what to do? If you give a gift card, make sure the recipient is aware of any fees and expiration dates by stapling the receipt for it to the gift card envelope. If you get a gift card, register it right away (if you can) on the retailer’s website. This may provide some loss protection. And most importantly, use it as soon as possible.  Don’t let the money you receive be part of the billions of dollars loaded onto gift cards that go unredeemed.

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